Rideshare Schedule C and the Unsupported Expense Package
Marcus filed a 2023 Schedule C for rideshare and delivery work. Gross receipts are $86,400. He reports $64,900 of expenses and $21,500 net profit, leaving a $6,940 balance due. The expense detail includes $31,200 of actual vehicle costs, $13,800 for a home office, $11,200 of supplies and parking, and $2,400 for a family cell phone plan. Marcus says he drove about half the miles for personal use but has no mileage log; he kept fuel and repair receipts. The home office is a 150-square-foot room in his 1,800-square-foot rented apartment; rent is $2,800 per month. He has no receipts for supplies or parking and admits the phone is shared with family. He proposes a $200 monthly installment agreement and says that is all he can afford. The case is assigned to you for a compliance interview, and the collection statute has 10 years remaining. He has no prior compliance history.
1. Evaluate each expense category under substantiation rules and explain the likely effect on the $6,940 balance.
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Analyze the categories separately, because the rules differ:
- Vehicle: IRC §274(d) requires adequate records or sufficient corroborating evidence for listed property. Fuel and repair receipts do not establish business mileage or the business-use percentage, and Marcus admits about half the use is personal. The actual-expense method requires a business-use percentage. If he can reconstruct mileage from a calendar or appointment records, you may compute standard mileage; otherwise the $31,200 is at risk.
- Home office: §280A requires exclusive and regular business use. The allocation is 150/1,800 = 8.33%; the rent portion is about $2,800 annually ($33,600 × 8.33%). If the room is also personal, no deduction is allowed. Utilities and rent must be allocated.
- Supplies and parking: there are no receipts and no mileage record supporting parking. §162 substantiation is missing. Disallow absent credible proof.
- Phone: only the business portion is deductible; a family plan requires allocation.
Effect: the $21,500 net profit is overstated by unsubstantiated expenses. Even allowing conservative home-office and phone allocations, the correct balance will likely exceed $6,940. The return should not be treated as final.
2. Given the unverified expenses and the proposed $200 installment agreement, what should you do next and what should you avoid doing?
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Do not accept the $200 agreement yet. An installment agreement under §6159 requires filing compliance and ability to pay the correct liability. The correct liability is not established while major expenses are unsubstantiated.
Next steps:
- Schedule an interview and request mileage records, the lease, utility bills, phone bills, and supplier receipts.
- Explain the proposed adjustments and appeal rights before any assessment.
- If he cannot substantiate the expenses, prepare the examination changes so the correct balance is set.
- After the liability is correct, obtain a complete collection information statement and evaluate an installment agreement, partial pay, or currently not collectible status based on income, expenses, and equity.
Avoid accepting an agreement based on the unfiled return, promising that the $200 offer is approved, or closing the case without documenting the substantiation gap. If he has no ability to pay and no equity, currently not collectible may be more appropriate than a defaulted agreement.
3. What documentation should the case file contain before the interview is completed?
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The case activity record should show the date and time of contact, participants, and the purpose of the interview. Document the specific expense categories discussed and the records requested. Record Marcus's statements about personal use of the vehicle, the shared phone, and the missing receipts. Note the home-office square footage and rent figures, and whether he claims exclusive use. Document the proposed $200 installment agreement and his stated ability to pay. Include the appeal-rights explanation and the deadline for submitting records. If you propose adjustments, record the computation and the basis for each disallowance. Document any referral or manager consultation. The file should let a reviewer reconstruct why the return was or was not adjusted and why an installment agreement was accepted or rejected. Avoid conclusory entries such as 'taxpayer uncooperative' without the underlying facts.